Congress doesn’t make New Year’s resolutions, but if it did, digesting our new report on pandemic fraud would be a good one. Released last week, the new report (“Pandemic Unemployment Fraud in Context: Causes, Costs, and Solutions”) details the how and why of record unemployment benefit fraud during the pandemic. Enacting even some of our policy resolutions would help Congress prevent any repeat of staggering taxpayer losses.
The coronavirus pandemic tested the nation’s unemployment benefits system more than any previous recession. Lockdowns and mass layoffs starting in March 2020—coupled with unprecedented new unemployment benefit programs created by Congress—combined to produce staggering demand for benefits. Claims quickly soared to 33 million by June 2020—more than two and a half times the prior record set during the Great Recession.
As Americans soon learned, soaring demand for help included unprecedented fraud and abuse. Everyone from small-time crooks to criminal organizations based in Russia and China attacked the unemployment benefits system, in what one expert dubbed “the Super Bowl of fraud.” One fraudster even rapped about how easy it was to rip off California’s unemployment system.
More than two years after temporary pandemic programs ended, the scale of improper payments and outright fraud is still just coming into focus. Official federal estimates suggest improper payments totaled a “low end” of $191 billion, but admit that doesn’t include elevated losses under the most-abused program, Pandemic Unemployment Assistance (PUA). Some private experts believe as much as $400 billion was lost, or over 40 percent of the record $900 billion spent to help the unemployed.
Unprecedented benefit increases—especially $600-per-week supplements initially added to all unemployment checks—created a richer target for criminals than ever before. Out-of-date administrative systems were quickly overwhelmed by the trifecta of implementing brand new federal benefit programs, managing exponentially soaring claims, and repelling constant fraud attacks. States responded differently, but many lowered anti-fraud barriers to clear massive backlogs. And key legislative design flaws in new programs like PUA, which initially failed to verify the identity or prior work history of claimants, opened the door wide to massive ripoffs.
Most people’s New Year’s resolutions involve a healthy mix of negatives and positives, like vowing to drink less and exercise more. We think the same should go for Congress’ resolutions on protecting unemployment benefits: some past policies to avoid and some positive changes to make for the future.
The policies to avoid should be clear. Unemployment benefits should once again provide partial wage replacement—not more in benefit checks than recipients could earn from working. Key failings of the PUA program, including allowing self-certification (of identity, earnings, and ultimately eligibility), should never be revived in a program connected to prior work and earnings. And Congress should do a better job ensuring that worker payroll taxes cover the cost of unemployment benefits—rather than tapping anonymous federal “general revenues” all added to the national debt.
The positive policy changes are equally straightforward. Federal administrative funds should be sufficient to ensure states have the capacity to handle future spikes in claims, basic cybersecurity protections, and robust fraud detection and prevention. States operating this state/federal system should also meet elevated expectations. This includes matching claimants against databases of those who should not be eligible—such as prisoners, deceased individuals, people claiming benefits in multiple states, and most individuals using foreign IP address, among others. Failing to do that invites abuse.
If Congress acts on these policy resolutions, it should significantly reduce the potential for future abuse—and better ensure that rightful recipients have timely access to benefits they deserve. One thing is certain: The criminals who attacked the unemployment benefits system during the pandemic will be ready to strike again if the flaws that made those benefits so vulnerable to fraud are not effectively addressed.